For distributors · How to, under 90 seconds
How do I plan a drawdown against stock I can actually sell?
Size the drawing to the stock you will have turned into cash before the repayment date, not to the limit.
In short
- Start from the repayment date, not the limit.
- Finance only what customers will have paid you for by that date, with room to spare.
- Test the plan against the total repayable, not the rate.
Start from the date, not the limit
Under the documented terms every drawing carries a repayment date, and the full amount is due on it whether or not the stock has sold. So the plan starts with the date, and works backwards.
Answer three questions
How much of this order will customers have paid you for by that date, not ordered, paid? What cash will you hold on that date from the rest of your trading? What else falls due around then?
The drawing is what the first two cover after the third is taken out, with room to spare. If the honest answer is smaller than the order, finance the smaller amount and buy the rest when it has sold.
Then put a price on it
Type the numbers from your own term sheet into the calculator. The figure to test your plan against is the total repayable, not the rate.
If the stock sells faster than planned you pay on the date and owe nothing extra. If it sells slower, the date does not move. Plan for the second.
Next in this track
How do I prepare for a financier’s questions as a distributor?